Introduction

2014 was a record year in UK real estate portfolio transactions with demand for portfolios at its highest level for eight years – £11.8bn transacted in Q4 alone.

  • Direct portfolio market - A total of £13.3bn across 145 portfolios was transacted equating to 20% of total 2014 volumes. This is an increase of 47% compared to 2013 portfolio volumes (of £9.0bn) and over double the volumes in 2012 (of £5.4bn) - the highest level since 2008.
  • NPL portfolio market - UK real estate backed non-performing loan portfolios accounted for an additional £20.3bn (face value) across 17 portfolios in 2014. This is approximately double the face value of NPLs traded in 2013.
  • A record year - Total direct and NPL portfolio transactions across the UK amounted to £33.6bn in 2014 across 162 deals, the highest level on record - an 82% increase compared to 2013 levels of £18.45bn. This is double the equivalent value of the top 10 football clubs in the world.
  • Competitive debt market – at the start of 2014 typical LTVs were around 60%. This has now risen to c.70% for senior debt from clearing bank lenders. There continues to be a competitive debt landscape from many sources, which we expect will continue throughout 2015. Continued improvement in debt terms will help compensate for the slowdown in yield compression.
  • Private Equity still dominant buyers - Including NPLs, private equity vehicles transacted a staggering c.£25 billion throughout the year. We expect a continued dominance in 2015 in both direct and indirect markets.
  • Bank deleveraging continues – Banks are continuing to capitalise on strong demand accounting for 65% (£21.8 bn) of portfolio sales by volume. The vast majority of this deleveraging (93% / £20.3 billion) has been focussed on non-performing loans sales. We expect deleveraging programmes to remain at the current level in 2015.
  • Market trends – During 2014 we witnessed a huge demand for granular portfolios of scale with a wholesale to retail business plan strategy. Throughout 2015 we expect there to be more emphasis on income management and strong debt terms (in the context of private equity) to achieve business plan as yield compression has slowed. UK funds will seek opportunities higher up the risk curve, which includes development, but will remain selective over portfolios in 2015.
  • Outlook for 2015 - heating or cooling? Q4 2014 was "very hot" and Q1 2015 has had a relatively slow start in comparison. This was a result of many deals closing at calendar year end with limited hangover into 2015. We do believe there will be a pick up in momentum during the year, again with higher transaction volumes during Q3/Q4 2015.

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